“Success is not final; failure is not fatal: it is the courage to continue that counts.” – Winston Churchill. And to be able to continue and sustain a business, requires not just courage but money.
What are the funding options available to a business depends on its growth stage, whether it is a start-up or a matured business. As some of the funding options typically accessible by start-up are not readily available to an established matured stage business due to the risk profile of the providers of funds.
The funding options for start-up may include the following:
- Angel Financing
Angel investors are typically individuals eg family members, close friends or business associate, individual investor who invest in startup or early-stage companies in exchange for an equity ownership interest. These financiers are typically scouted within the close circles of acquaintances or business networks.
- Crowdfunding
Crowdfunding is the raising funding through multiple funders via crowdfunding websites eg kickstarter, indiegogo, gofundme etc. There are many crowdfunding websites with some specifically cater for funding of specific businesses eg mightycause for charity, gofundme for individuals, SeedInvest Technology for start-ups etc.
- Venture Capital
A venture capitalist (VC) usually provides capital to firms that exhibit high growth potential in exchange for an equity stake. VC are focused on specific industry sectors (software, digital media, semiconductor, mobile, etc) or on stage of company (early-stage seed or Series A rounds etc) or geographical locations (US, China, Asia etc).
- Incubator
Incubators provides more than funding and its role include provision of resources (premises, back office support etc), access to industry mentors and networking to early start-ups.
- Bank or financial institutional funding
These are traditional bank financing from loans to over-drafts either with a fixed tenor of payment (business term loan, overdraft) and or for specific asset financing eg trade receivable financing, equipment loan)
The funding options for matured business may include the following:
- Private Financing
Private financing are typically self financing commonly seen in most SME by owners, shareholders or related parties of the shareholders of the company. It may include individuals eg close friends or business associate and individual investor.
- Crowdfunding
Crowdfunding is available for matured business but not commonly utilised by SME. The crowdfunding sites are essentially multi-party lending sites vs new product or equity focused crowding funding sites for start-ups.
- Bank or financial institutional funding
These are the most common funding used by SME and can range from government assisted loans (SME micro financing) to straight bank financing.
The ability to access the adequate amount of financing and to get it promptly is very important to all businesses especially SMEs due to its limitation in accessing other sources of funding vs MNCs eg medium term notes, bond issuance or public offering. It is therefore paramount that owners of SMEs get a good and prompt feel of their financial health in terms of timely relevant financial reporting, accurate cashflow projections, early alerts through meaningful budgeting and stringent costs management. All these simple and easy processes will help to mitigate the likelihood of unpleasant funding shocks and provides a valuable advantage over its competitors, the element of time way before the looming icebergs are crashing on you. This may not guarantee your survival in difficult times but surely it will goes a long way towards your long-term sustainability.
